Michael D. Moberly January 14, 2009
A key, in my judgment, for successful venture capital initiatives, is balancing the attention given to putting in place experienced management teams (in an invested firm) with ensuring control, use, ownership, and value of the invested intellectual property (IP) and intangible assets is sustainable.
Achieving that balance begins with a genuine recognition that a well constructed (IP, intangible asset) assessment and due diligence process will provide investors (VC’s) with current and objective pre/post deal insights and perspective that can serve as the foundation for facilitating (consumating) a more secure, profitable and sustainable transaction, not impede it!
Investors need relevant, insightful, and forward looking (over-the-horizon) perspectives that go well beyond mere ‘snap-shots-in-time’, i.e.,
1. about embedded, under-the-radar risks, vulnerabilities, and operational – usage complexities that may impair and/or entangle assets that could become preludes to costly and time consuming legal disputes and challenges.
2. to identify and unravel any additional (internal) centers (chains, clusters) of valuable, leveragable, and potentially revenue producing intangible assets and competitive advantages beyond what is espoused (boasted) publicly, and
3. to identify (invested) asset protection and value preservation measures that are aligned with (a.) the investers’ objective, (b.) the company’s strategic business plan, and (c.) the functional (life, value) cycle of the invested assets.
A key focus of the assessment – due diligence process is to identify, unravel, and mitigate circumstances that can adversely affect the company’s and VC’s ability to sustain control, use, ownership, and value of the invested assets.
It is not uncommon for 75% to 90+% of start-up – early stage firms’ value, sustainability, projected sources of revenue, and future wealth creation potential lie in – are directly linked to their IP and intangible assets. If an assessment-due diligence reveals any of the key assets are suspect, impaired, or have been compromised, the investment may warrant reconsideration and/or inclusion of specific (risk mitigation – transfer) covenants before going forward. Under such adverse circumstances, its unlikely that a management team alone, regardless of their experience and skill, can fully overcome or reverse such asset transgressions absent costly, time consuming, and momentum stifling legal challenges!